On June 30, 2000, President Clinton signed the Electronic Signatures in Global and National Commerce Act ("E-SIGN" or "Act"). The Act clarifies issues regarding the legal effect of electronic signatures, and contracts, and provides national standards and consumer protection to encourage E-commerce. E-SIGN will have a substantial impact on how business is conducted this century. The Act is effective October 1, 2000.
E-SIGN validates electronic contracts and contracts executed by electronic signatures, sets forth consumer protection rules regarding disclosure and consent; and establishes record keeping requirements. These will be discussed below.
Legal Validation. In a nutshell, E-SIGN provides that notwithstanding any other law with respect to any transaction affecting interstate or foreign commerce such transaction may not be deemed invalid merely because it is in electronic form or is signed with an electronic signature. This cornerstone provision of the Act clarifies that when other laws or regulations require a contract and/or signature, that an electronic document and electronic signature will suffice. Importantly, nothing in E-SIGN requires any person (other than certain government agencies) to agree to use or accept electronic records or signatures. Thus, an e-tailer could require that before it ships the book you ordered that you download the order form contract and manually sign it and mail it in.
Electronic Signatures. The Act defines an electronic signature as "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." Thus, the law does not identify any particular technology or device as an electronic signature. You could simply adopt an electronic scan of your handwritten signature, or an electronic graphic file depicting a certain symbol, provided you use it as a signature. However, due to security reasons, currently the most common form of electronic signature is a digital signature which uses encryption techniques to verify that it belongs to the sender. After signing the Act into law with a pen, President Clinton then also signed it with a digital signature.
Consumer Protection. E-SIGN includes several provisions designed to protect consumers transacting E-commerce. First, the Act provides if a statute, regulation, or other rule requires certain information regarding a transaction be provided or made available to a consumer in writing, an electronic record may fulfill such requirement only if the consumer has affirmatively consented to such use of an electronic record and has not withdrawn such consent, after receiving certain disclosures regarding the electronic records.
The consumer must be provided with a conspicuous statement that informs the consumer: 1) of any right or option to receive the record on paper or other non-electronic form; 2) of the right to withdraw his/her consent to use of the electronic record and any conditions to, consequences of, or fees involved with such withdrawal; 3) whether the consent applies only to the particular transaction requiring the information being provided or to specifically identified categories of records that may be provided or made available during the course of the relationship; 4) of the procedures to follow to withdraw consent and to update the consumers information for being contacted electronically; and 5) how the consumer may request and receive a paper copy of an electronic record and whether there is a fee.
In addition, prior to consenting, the consumer must be presented with a statement of hardware and software requirements for access to and retention of electronic records. The consumer must consent electronically or confirm his/her consent electronically in a manner demonstrating that he/she can access information in the electronic form used to provide the information for which the consent is given. Finally, once consumer consent is given, if a change in hardware or software requirements creates a material risk that the consumer cannot access or retain a subsequent record, the provider of the electronic record must: 1) notify the consumer of the revised requirements; 2) notify the consumer of his or her right to withdraw the consent without any fee, and without any condition or consequence not previously disclosed; and again obtain electronic consent, demonstrating the consumer can access the information in electronic form.
Importantly, E-SIGN does not affect the content or timing of any disclosure requirements of any other statute, regulation or rule. Likewise, if under existing law a record is required to be provided or made available by a method that requires verification or acknowledgment of receipt, the requirement may only be met electronically if the method used also meets the verification or acknowledgment of receipt requirement.
Record keeping Requirements. E-SIGN provides that where the law requires a contract or record relating to a transaction affecting interstate or foreign commerce be retained, such may be retained electronically, provided the electronic record retained accurately reflects the information and remains accessible to, and capable of being reproduced by, all persons entitled to access under the law for as long as required by the law. Further, if the law requires that the contract or record be provided, available, or retained in its original form, such requirement will be satisfied if the above requirements are met. The Act also specifically provides where the law requires the retention of a check, that requirement may be met if an electronic record of the information on the front and back of the check is retained in accordance with the above requirements. Importantly, where the law requires that a contract or other record be in writing, the legal effect, validity or enforceability of the contract or record may be denied if it is not in a form that is capable of being retained and accurately reproduced later by all parties or persons entitled to retain it.
The act also specifically authorizes notarizing, acknowledging, verifying, or making statements under oath by electronic signature, provided the electronic signature of the notary or other person authorized to perform such act is attached to or logically associated with the signature or record.
Important Exceptions. E-SIGN does not apply to any law regarding the creation or signing of wills or testamentary trusts; state laws regarding adoption, divorce or other family law matters; certain transactions governed by certain sections of the Uniform Commercial Code; and any court documents required to be executed in connection with court proceedings. The Act also does not apply to any documents required to accompany the transportation or handling of hazardous, toxic or dangerous materials. Further, as added consumer protection, the Act does not apply to the following important notices of:
Conclusion — E-SIGN promises to give a big boost to E-Commerce, particularly in the financial services industry. However, any business can benefit from its provisions. Any business now conducting or planning on conducting E-Commerce (which should be any business) should take steps to adopt policies and procedures to comply with the Act's requirements.
The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright, 2003 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.